Bond market coming to Ethiopia, and experts review T-Bills

Ethiopia may soon have corporate bonds, paving the way to a bond market, according to a press conference last week by Prime Minister Meles Zenawi. According to a report in the respected Fortune ( weekly newspaper, the Prime Minister told media on 18 March that state-owned enterprises would start issuing bonds within weeks.
State enterprises such as the Ethiopian Electrical Power Company (EEPCO), the Ethiopian Telecommunications Corporation, Ethiopian Shipping Lines and Ethiopian Petroleum Enterprise are to offer bonds with nominal values of over Birr 100 million (US$7.4 million) and the interest rates could be higher than bank deposit rates. The proposal was tabled by authorities at the central National Bank of Ethiopia ( and is hoped to spur competition in the banking sector, according to its proponents.
Prime Minister Meles Zenawi is quoted by editor Tamrat Giorgis as saying: “Priority was given to controlling inflation, not in checking real interest rates [on deposits].” Inflation was very high in the past but was now down to 8%.
Tamrat wrote: “With inflation driven to record high double-digit figures last year and borrowers accessing money from the banks on negative real interest rates, savers are believed to be on the losing end. Banks hardly pay over 4% interest on deposits. This is the minimum bank deposit rate imposed by the central bank, although commercial banks are allowed to pay higher than that. On the other hand, commercial banks in the country charge as high as 16% interest on their advances and loans.
“Macroeconomic policymakers in the Federal Government have not been much concerned with the impact of this imbalance due to a negative real interest rate, which could discourage national savings. Their priority was, however, laid in keeping inflation at bay.
“Now inflation is down to a single digit (8%), the Federal Government is contemplating pushing real interest rates on lending to the positive, pressuring banks to create a competitive market. Even when the Federal Government cut down on its domestic borrowing in order to ease the cap imposed on banks so that they lend more following a robust performance of tax collections this year, the banks remained paying the minimum interest rate on deposits.”
He cites some commentators who warn that the high value of the bonds mean they are unlikely to have much impact on the retail market and only a few will be able to invest in them.
Last Sunday Capital newspaper ( reported that experts of Ethiopia’s Ministry of Finance and Economic Development, the World Bank and the International Monetary Fund were meeting in Addis Ababa to discuss mechanisms for a regular fortnightly auction of treasury bills in a bid to regulate the money supply.

Research by local investment house Access Capital the year average inflation rate peaked at 46% in February 2009 and year-on-year inflation at 64% in July 2008. The rate since fell quickly, as predicted accurately by the Access Capital report.
The debt market in Ethiopia has long been limited to Treasury Bills and some exchanges between banks. Recently there were only 28‐day, 91 day and 182‐day Treasury Bills available and the yield is described as “minimal”, reflecting the lack of investment alternatives. (Unfortunately the NBE website appears to be out of order to give present statistics).
A few years ago, when this author discussed issuing bonds with one local parastatal with massive multi-billion investment programmes, they said this was a good idea but it turned out more advantageous to finance their with loans including at low interest rates from the Government-owned Commercial Bank of Ethiopia (CBE).
According to the national Plan for Accelerated and Sustained Development to End Poverty (PASDEP) 2005/6-2009/10: “Regarding future plans on the development of capital markets, the pre-conditions that are critical for the establishment of capital market are not yet ready. The accounting and auditing practices are rudimentary in Ethiopia, and the minimum requirements to establish effective supervisory and regulatory institutions are not yet well in place. It is therefore, believed that the establishment of a corporate bond market which involves less risk both to participants of the market and the stability of the business environment should come first. The latter will help create some of the necessary conditions for the establishment of a capital market. To this end, the NBE has conducted a study on the feasibility of establishing a corporate bond market in Ethiopia and follow up studies are planned to be undertaken in 2006/07.”
The NBE underwrote the the EEPCO Millennium Bond, a first diaspora bond issued in 2008 just after the year 2000 in the Ethiopian calendar, by the state-owned power company and marketed by CBE, making the Government the borrower. Interest rates were set at 4%, 4.5% and 5% respectively for 5, 7 and 10 years bonds. The nominal was US$ 100 and minimum investment $500 or its equivalent in selected convertible currencies. Eligible investors are holders of the Ethiopian passport who are residents outside of Ethiopia, and citizens of foreign countries who can trace their origin back to Ethiopia.
Some work would be needed to develop a efficient bond market, and it could take some time.


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